Non-Disclosure Agreements And Trade Secrets: 12 Points To Consider

• Published date: 19 November 2021
• Law Firm: Holland & Knight
• Author: Mr Steven Gordon

When businesses share their trade secrets or confidential information with employees or third parties (a franchisee, a joint venture partner, a potential buyer, etc.), they rely on trade secret law and on non-disclosure agreements (NDAs) for protection. How do NDAs affect potential trade secret claims and vice versa? What issues should businesses consider in drafting NDAs? Here are a dozen points to consider.

1. An NDA cannot expand what constitutes a trade secret because "a trade secret is defined by law ' not by contract." Capricorn Mgmt. Systems, Inc. v. Gov. Emps Ins. Co., 2019 WL 5694256, at *17 (E.D.N.Y. 2019) Nonetheless, an NDA may provide broader protection than trade secret laws because it can cover proprietary and non-public information that does not meet the definition of a trade secret "Trade secrets are defined by statute, but terms such as confidential and proprietary information are defined by the contract. Thus, a defendant may breach a contract for disclosing confidential information that does not constitute a trade secret." Albert's Organics, Inc. v. Holzman, 445 F.Supp.3d 463, 476 (N.D. Cal. 2020). Accordingly, an NDA should state that it covers confidential and proprietary information as well as trade secrets to ensure the broadest protection of the information at issue.
2. There are three basic approaches to defining the information covered by an NDA: 1) providing a general description, usually a list of categories of covered information, 2) providing a specific description of the information and 3) marking or designating each item covered. Using a general description provides broad and flexible coverage but, in the event of a dispute, may engender debate about whether particular information is covered, making enforcement more difficult. Specific descriptions eliminate such debate, but they are inflexible and require amendment of the NDA if a different type of confidential information is to be disclosed between the parties. Using a marking protocol is both highly specific and completely flexible in terms of covering all sorts of information, but it is the most burdensome approach in practice.
3. Courts have upheld NDAs that utilize a general description of covered information and employ broad language in describing it. For example, one federal court recently upheld NDAs that covered "any and all financial, technical, commercial or other information concerning" the company's "business and affairs." The court reasoned that these broad terms...